Home reversion plans boom as pensions fail

Home & Capital has predicted the home reversion market will grow to 20 per cent of the equity release market on the back of regulation.

Home reversion plans currently equate to 5% of the equity release market. As home reversion plans become a mainstream retirement planning product, volumes could grow tenfold in less than a decade. It will also help the whole market to grow and start to deliver on independent estimates of a doubling of the equity release market by 2010.

Nigel Hare-Scott, sales director of Home & Capital says:

"This country is facing a pensions debacle. Final salary pension schemes continue to close, the performance of money purchase schemes is insufficient, and the Government cannot keep supporting an ageing population going forward. However, homeowners do have considerable property wealth and can use this to supplement their retirement income. Often, the best decision for people is to trade down - sell a property which is too big once the children have left, buy a smaller one and release a cash sum. In other circumstances, the individuals may for personal reasons wish to stay in the family home and equity release is the most suitable choice."

Equity release products have existed since the late 1960s and John Inskip, founder of Home & Capital, invented the first home reversion plan in 1978 - a means by which a homeowner could sell the home for a cash lump sum and receive a rent-free lifetime lease.

Home reversion plans may have been overlooked in favour of lifetime mortgages, but have features that give them greater appeal to some customers:

  • Certainty and simplicity. Once the percentage of the property being sold and the amount of the lump sum is fixed, all the financial arrangements are fixed
  • It is not a loan and no interest is calculated or payable. Some elderly people have an aversion to debt and will not therefore take out a lifetime mortgage, even with a no negative equity guarantee
  • A larger amount can be raised compared with a lifetime mortgage
  • A plan holder can sell an initial percentage of the property, and then progressively raise additional sums until 100% is sold
  • There is flexibility to move house


However, the ghosts of previous scandals still haunt this market.  This is the reason that providers prefer to call them home reversion schemes rather than home income plans.

The downside of home reversion schemes is that they can be very poor value for money, particularly for "younger" pensioners. The sum of money received will be significantly less than the true market value of the property.

The other main disadvantage of home reversion schemes is that if you were to die shortly after taking out a plan it will have proved to be a costly way of raising funds. Therefore they are not generally recommended for those with severe health problems or the very elderly.

Bridgewater Equity Release, Ecclesiastical Life, Hodge Equity Release and Home & Capital Trust originally led the market, but now bigger names are getting stuck in, notably Northern Rock and Norwich Union. More recent big-name entrants include Bristol & West, Prudential and Standard Life Bank.

Some big lenders still view equity release with caution, including Barclays, Halifax, Lloyds TSB and Nationwide. Some fear equity release could trigger the next great financial services mis-selling scandal. Although modern advice and modern products are years ahead of the dodgy home reversion schemes of earlier years, a recent high profile ITV documentary was very damaging to the market image


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